RBI panel suggests keeping weighted average call rate as policy target

The Reserve Bank of India’s internal working group has recommended continuation of the weighted average call rate (WACR) as an operating target for monetary policy and the existing corridor system for liquidity management.

“The WACR is found to be highly correlated with other overnight money market rates (TREPS and Market Repo) in the collateralised segments,” RBI Governor Sanjay Malhotra said as part of his monetary policy address.

WACR is also found to be effective in transmitting signals to other money market instruments, such treasury bills (T-bills), commercial papers (CPs), certificate of deposits (CDs) and government bonds, the working group said.


In a report, the working group also proposed replacing the 14-day variable rate repo and reverse repo auctions with operations of seven days, addressing banks’ concerns over the difficulty of estimating liquidity needs in a 24x7 payments environment.

The central bank had set up an internal working group, with deputy governor Poonam Gupta as its chairperson, to assess the effectiveness of the RBI’s February 2020 liquidity management framework. The RBI has sought comments on the report latest by August 29.

The RBI aims to keep WACR anchored to the policy rate, currently at 5.50%, for effective monetary policy transmission. But given the dwindling share of call money market in total overnight money market volume, from 16% in FY11 to 2% in FY25, market participants had questioned the efficacy of WCAR and pitched alternatives like TREPS rate and newly introduced secured overnight rupee rate (SORR)-as the operational rate.

The report said that banks and standalone primary dealers, participants in the call money market, have access to the LAF window. They are also under the regulatory purview of the central bank, meaning the RBI has the maximum lever over WACR as compared to any other overnight money market rate.

On the other hand, the collateralised overnight money market involves many non-bank players like mutual funds, insurance companies, and pension funds, whose activities don’t reflect true inter-bank reserve dynamics and are not regulated by the RBI, it added.